Navigating Private Placement VL: What You Need to Know
When advising high-net-worth clients, law firms and family offices, its important to become familiar with a popular product that is geared specifically to clients in this market. This product is Private Placement Variable Life Insurance (PPVLI).
PPVLI is the one product that is quite frequently being discussed at high-net-worth roundtables, conferences or symposiums. Therefore, every advisor needs to have some familiarity with this product if he or she wishes to enter–or remain–in the upper echelons of the high-net-worth market.
The product is simply variable life insurance that offers customized and alternative investment options to high-net-worth clients.
Typically, its minimum premium commitment is in the range of $250,000 to $1,000,000. In return, the client receives customization, access to alternative investments and an institutional pricing structure.
PPVLI adds some unique and attractive features to variable life insurance that specifically are tailored to the high-net-worth market. Due to its specialized focus, you need to be aware of many things about PPVLI. A few tips are included in the box on this page.
This article will focus on what is perhaps the most critical point to keep in mind. (Note: This is not specific legal or tax advice, so you should seek guidance from your own legal or tax counsel. However, this should give you general observations on this market.)
Perhaps the most critical point to keep in mind when serving this market is the importance of using a quality insurance carrier.
This is essential because PPVLI is a product that should be held by your clients over the long term. Thus, you need to recommend an insurance carrier that can provide the highest degree of expertise, service and financial strength over the long term. In many cases, the “long term” could run upward of 40 years.
When looking at PPVLI as a long-term financial solution, a key consideration is the financial strength of the carrier.
Although PPVLI is a superior product for achieving accumulation during the insureds lifetime, the product primarily is intended to produce an income tax-free death benefit upon the insureds death.
Many advisors recognize that PPVLI premiums are set aside in an insurance company separate account. Here, the assets are not chargeable with liabilities arising out of any other business the insurance company may conduct.
However, the “net amount at risk” or “term insurance portion” of PPVLI is not set aside in a separate account. Instead, it is a general obligation of the insurance company.
This general obligation can be significant. For example, if the insured is age 40 or younger, the Internal Revenue Code requires the “net amount at risk” to be at least 250% of the policys cash surrender value.
Stated another way, this “net amount at risk” general obligation of the insurance company is at least two and one-half times the policys separate account value.
High-net-worth individuals are accustomed to engaging in transactions that demand the highest degree of service and expertise. They want to do business with a carrier that they know, one that has a long history of doing the right thing for policyholders and one they can reasonably expect has the financial strength to endure through challenging economic times.
Therefore, when looking at insurance carriers, advisors should look for several measures of excellence. These include:
The companys financial strength;
A significant history of experience in the life insurance business;
Long-term commitment to the PPVLI business;
Significant expertise in life insurance as opposed to other lines of insurance;
Significant expertise in PPVLI;
Significant expertise in alternative investments;
Significant expertise in underwriting large premium cases; and,
Commitment to policyholder service.
In conclusion, you need to select an insurance carrier who can service both you and your client over the long term. Choosing the right carrier from the outset will provide you and your client with many rewards over the years.
Michael Chong, JD, is vice president and associate general counsel at Massachusetts Mutual Life Insurance Company, Hartford, Conn. His e-mail is email@example.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 5, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.